If you've ever fancied yourself as a music mogul, a new website gives you the chance to invest in up-and-coming acts - and make some money out of them if they hit the big time. With a minimum investment of $10 (just over a fiver), you don't need to be in the Simon Cowell wealth league to take part.

SellaBand.com has been billed as the latest online revolution in the way we listen to music. It allows people to buy "shares" in acts they think have the potential to be the chart-toppers of tomorrow. When the amount invested in an act hits the $50,000 (£25,200) mark, they go into a studio to record an album - which is then sold worldwide - and the fans sit back and wait for the money to start rolling in. That's the theory, anyway.

SellaBand has grown rapidly since it was launched in August last year; it now boasts more than 4,000 bands and solo artists, and around 12,500 "believers" (investor fans) around the world, who have between them handed over more than £400,000 of real money in less than 10 months. It's like a "social networking" website such as MySpace with the added entrepreneurial buzz of eBay.

SellaBand is the latest in a long line of "alternative investments" that have ranged from buying a share of a racehorse to financing a West End show. While many of these are hugely risky ventures where people have been known to lose their shirts, the SellaBand model doesn't involve stumping up huge sums and believers can get their money back at any time until the $50,000 goal is reached.

So, how does it work, who's behind it, and what are the catches? SellaBand was the brainchild of Dutch music lover Pim Betist, who teamed up with two former Sony Music big cheeses to make his dream a reality. It is registered as a German company but based in Amsterdam.

The founders say the site allows unsigned acts and their fans to go into business together, sharing in the financial as well as artistic success. Participating bands and solo artists upload a maximum of three demo songs. They do not have to pay to sign up, and all genres of music appear to be welcomed. Each act issues 5,000 "parts" (shares) costing $10 each.

Music fans can log on and listen to tracks for free, and, if they like what they hear, they can buy one or more parts of that artist's music. They then officially become a "believer". Fans can buy parts of as many acts as they like, and are able to chop and change their investments or pull out altogether.

If and when an artist hits the magic $50,000 - and many probably won't come close - no other investors are able to come on board, and the money raised will be used to finance the recording of an album in a state-of-the-art studio and pay for the services of a top producer and A&R person. Limited edition CDs of the recording will be sent to the artist's believers. This is where the fans can start to get a return on their investment (see below).

Last weekend, New Zealand rapper Maitreya became the sixth artist to break through the $50,000 barrier, and the first two finished SellaBand albums - by Dutch gothic rock band Nemesea and Hawaiian singer-songwriter cubworld - are due out later this month.

The British act with the most parts sold are rock band Trail, who have landed a slot at the 02 Wireless Festival in London next Friday. Lead singer Charlie Afif says they love the site because it gives them a chance to communicate with real fans. "It's certainly something you can't ignore. It's real people at the end of this. They are giving you feedback and putting their money where their mouth is." However, the band is also investigating other routes to making it big.

Ben Perreau, editor of music site NME.com, says: "The audience want to have their say about what's going on. It was only a matter of time before music fans wanted to start getting paid for what they are doing."

Not everyone is convinced, however. A recent Guardian Unlimited article poured scorn on SellaBand's business model.

But some would say that cutting fat-cat record label bosses out of the equation and handing power and potential profits to ordinary fans can only be a good thing.

Case study of a believer: 'I can influence the success of my chosen artist'

Adrian Webb and wife Penny have invested around £740 in SellaBand artists, with £500 riding on a Portuguese act called Travellers, whose music is described as "lounge chill-out with a bit of world fusion".

"He's my tip for the top," says Mr Webb.

"I'm convinced he can make it into the cool chill-out TV commercial space, like Moby did with Play, so I've invested quite a bit and am working hard to get him noticed.

"The beauty of SellaBand is that investors can influence the success of their chosen artists by sharing their music with friends, on MySpace, etc," says Mr Webb, head of corporate communications at insurer esure.

How it works

This is how fans will supposedly make money. Acts that reach the goal of $50,000 (£25,200) raised go into a studio to record a CD. Copies will then be sold online and at gigs for $10, of which $2 is shared between the artist's "believers". These fans can make extra cash by encouraging friends and others to buy copies. For every CD they sell, the believer will pocket $1 commission.

Three of the CD's tracks will be available as free downloads on Sellaband's download portal. There will be adverts on this portal, and all the advertising revenue will be shared equally between the artists, believers and SellaBand, though how much you get will depend on your artist's "market share" on the portal. The more their music is downloaded, the more you can make.

The catch is that the income you receive from the act you have nurtured could well dry up after just one year. That is because SellaBand will, after 12 months, hand over the full rights to the master recording to the artist, who is free to walk away and do whatever they want with it. And the artist only has to make their songs available for free download for one year. If your act signs a multi-million-pound deal with EMI, you don't get a slice of that action.

In contrast to the fans, SellaBand's founders could potentially carry on raking in the readies for decades. They get 30% of the publishing income "for life of copyright" - ie, forever (this clause only relates to the songs recorded with SellaBand). The site's founders also earn interest on the money paid upfront by believers.

As an investment proposition, SellaBand is probably best regarded as a premium bond-style flutter rather than a serious money-making opportunity. The site's managing director Johan Vosmeijer says: "Everybody asks us, 'Is SellaBand going to make me rich?' We say, 'Don't quit the day job.' The model is unproven in that respect. [But] we all think we are going to earn some money."